ORDER
R. Jayaraman, Member (T)
1. Both the aforesaid appeals are directed against the order of the Collector of Central Excise (Appeals), Bombay bearing No. R-523-524/AUR/89 dated 29-6-1989. Since both the appeals involve consideration of the same issue, they were heard together and hence this common order.
2. The facts of the case for purpose of disposal of the appeals can be briefly stated as below:
The appellants are engaged in the manufacture of iron and steel castings at their foundry. They have sought for availing of modvat credit in respect of the duty paid on the inputs, which are in the nature of certain chemicals going into the preparation of ‘sand moulds’ for casting. Availment of modvat credit in respect of the said inputs going into the preparation of sand moulds was objected to by the department on the ground that the inputs are used in the preparation of sand moulds, which are in the nature of equipments and hence inputs so used in the preparation of sand moulds would not be eligible for modvat credit in view of the explanation to Rule 57A of the Central Excise Rules. It was also alleged by the department that the sand moulds were final products falling under sub-heading No. 8480.00 of the Central Excise Tariff 1985 and had been exempted from the payment of duty under Notification Nos. 220/86 and 381/86. Hence credit cannot be allowed on the duty paid on the inputs used in the preparation of sand moulds because of the provisions of Rule 57 (C) of the Central Excise Rules. In the adjudication proceedings initiated under 5 different show cause notices, the Assistant Collector held that the appellants are not entitled to take modvat credit in respect of inputs used in the preparation of sand moulds and directed the appellants to credit a sum of Rs. 11,35,8907- for the period from 1.4.1987 to 31.5.1988 and another sum of Rs 4,47,376.35 in respect of the period from 1.6.1988 to 31.10.1988. The appellants took the matter in appeals before the Collector (Appeals) which were rejected by the said authority. The present two appeals are against the said order of the Collector (Appeals) rejecting their appeals.
3. Shri Hidayatullah, the learned advocate, on behalf of the appellants, stated that the main issue to be considered in these two appeals, is whether certain foundry chemicals used in the preparation of sand moulds are eligible for modvat credit. Shri Hidayatullah, dealt elaborately with the process of preparation of various kinds of sand moulds for casting and also took us through the photographs and write up to bring home the fact that only shell sand moulds have greater shelf life and at the most these moulds only could be considered as marketable. He stated that there are three types of moulding: green sand moulding, cold setting sand moulding and shell sand moulding. Only in the case of shell sand moulding, they can be construed as marketable, whereas in the case of other two, they cannot be construed as goods, since they are not marketable but are highly unstable. He also contended that as per the provisions of Rule 57(A), final products referred to therein means – finished excisable goods. Hence, only if they are excisable goods, they can be construed as final product. In this case, because the aforesaid moulds are not marketable, they cannot be construed as goods and hence cannot be construed as final products. Hence, application of Rule 57(C) in their case by the department is not legally justified. He also contended that the Assistant Collector has misconstrued the whole issue by classifying all the sand moulds as marketable, whereas, only shell sand moulds ‘can at the best, be construed as marketable. Because of this misconception and misunderstanding, he has held that all the sand moulds are final products and hence, Rule 57(C) is attracted. He also contended that the moulds for metals may be classifiable under Chapter 8480.00; but what is classified under Central Excise Tariff can only be moulds, which are capable of being brought to the market for being bought and sold. In this context he cited the judgment of Bhor Industries Ltd. reported in 1989 (40) ELT 280 (SC) v. Collector of Central Excise and the judgment in the case of Collector of Central Excise v. Ambalal Sarabhai Enterprises reported in 1989 (43) ELT 214 (SC). He contended that three tests have been laid down for excisability:
(i) Manufacture;
(ii) Marketability and
(iii) Specific in Tariff.
4. Merely because moulds are specified in the Tariff they do not become excisable goods unless they are capable of being marketed. It is the burden on the part of the department to prove that the goods are marketable and here there is no evidence adduced by the department to show that the sand moulds in question are marketable. He, therefore, contended that sand moulds prepared by them, being not marketable, cannot be classifiable under Chapter 84.80, since they are not goods. Hence Rule 57(C) is not attracted.
5. As an alternative argument, the learned advocate proposed that even if sand moulds are held to be goods, they are only intermediate products in the manufacture of final product viz. castings. No one produces sand moulds for stock and sale. They are only meant for captive use. Nobody markets them and the moulds are made according to the specific need for the particular castings and hence they could be construed as intermediate product and are eligible for modvat credit in terms of Rule 57-D of the Central Excise Rules. He contended that the inputs need not be present in the final product. In this context he referred to the Supreme Court’s decision in the case of Ballarpur Industries Ltd. reported in 1989 (43) ELT 804 (S.C.). When the Bench asked the learned advocate as to whether he has got any argument with regard to the department’s allegation that the sand moulds are in the nature of equipments and hence inputs used in the equipments which are sought to be excluded by way of explanation to Rule 57(A) is not eligible for modvat credit, he contended that there is no allegation in the show cause notice. When the specific allegation was pointed out by reading the same in the show cause notice, he contended that the allegation is cryptic and is not sufficient and even the findings of the authorities are not elaborate on this ground. The entire case of the department according to him was only on the basis that the sand moulds are finished goods and in terms of Rule 57(C) modvat credit is not admissible.
6. Heard Shri Mondal. After elaborating the details of the modvat scheme and object thereof, he contended that it has never been the intention of the Government to extend the benefit of modvat credit to the machinery, equipment, instrument etc. as evidenced from the explanation to Rule 57(A). For the purpose of modvat credit, both the inputs and final products are to be excisable and dutiable goods. The duty paid on inputs used in or in relation to the manufacture of final product is extended to the modvat credit. He also contended that as per the Notification No. 381/86, sand mould was specifically mentioned in the Notification and such moulds used in the manufacture of steel castings is exempted. Notification No. 220/86 exempts moulds for metals. He also cited the Board’s clarification regarding ingot moulds, wherein it has been held by the Board that such moulds are not eligible for modvat benefit. Citing the judgment in the case of Mis. Kashmir Vanaspati reported in 1987 (31) ELT 218 (Tri.) Shri Mondal contended that raw materials go direct to the final product. Sand moulds cannot be said to go direct to the final product. He also cited the judgment of South Regional Bench reported in 1988 (12) ETR 865, wherein, it has been held by the Bench that moulds are appliances used in the manufacture of final product. Hence, modvat credit is not available. He contended that both citations made by the learned advocate are not relevant. He therefore pleaded for the rejection of the appeals.
7. Shri Hidayatullah, in reply contended that there is no material which has been produced, excepting, the allegation that the sand moulds are equipment. Clarification of CBEC is not applicable to all types of moulds, unless it is specified. As against the citation of M/s. Kashmir Vanaspati case, Shri Hidayatullah would urge us to consider the ratio of the decision in Ballarpur Paper Mills’ case. He also contended that the decision of the South Regional Bench is not applicable because that deals with the product, which was a cast iron duplex mould, which is a permanent mould.
8. After hearing both sides and perusing the records, we would like to identify certain undisputed facts involved in these appeals:
i) Input materials in respect of which modvat is claimed are used in the preparation of sand moulds, into which the mould metal is poured for manufacture of castings. Mould metal so poured in the mould would acquire the shape of moulds.
ii) These moulds are made separately and independently of melting the pig iron or steel.
iii) Sand moulds are not repeatedly in use and dismantled after one use.
iv) Mostly these moulds are only for captive use and they are made in the foundry for purpose of casting.
9. In the context of the aforesaid undisputed facts we are to consider the main issue viz. whether the inputs used in the preparation of sand moulds are eligible for mod-vat credit in terms of the provisions of the modvat rules.
10. Arguments raised by the learned advocate can be summed up as below:
Whether sand moulds other than shell and moulds could be construed as final product because of the fact that they cannot be called as goods and hence not excisable goods. Since Rule 57(A) defines final product (finished excisable goods), moulds which are not marketable, cannot be called goods and hence cannot be construed as finished excisable goods. In view of this, Rule 57(C) is not attracted.
11. The aforesaid argument is, no doubt, tempting. However, we observe that this is not the main issue, which is required to be considered for purpose of extension of modvat benefit in respect of inputs. Rule 57(A)of the Central Excise Rules deals with the applicability of the scheme of modvat. Under this Rule, it has been indicated that the duty paid on notified inputs used “in or in relation to the manufacture of the notified final product” is eligible for modvat. However, by way of explanation, it has been laid down that ‘inputs’ do not include –
“machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products”.
12. From the above, first and foremost consideration for applying modvat scheme is whether both final products and inputs are notified. If so notified, the inputs are used in or in relation to the manufacture of final products. Even if they are so used, whether the inputs do not get hit by the explanation to Rule 57(A). In this case, the final product is iron or steel casting. Inputs are certain chemicals admittedly used in the preparation of sand moulds. These sand moulds are made separately, into which molten metal is poured for getting the required shape of the casting. In our view, it is immaterial for us to consider whether these sand moulds are stable or marketable or whether they could be construed as finished excisable goods. Here the dispute is not about the excisability of the sand moulds. The dispute is with regard to the eligibility of modvat credit on inputs used in the preparation of sand moulds. For this purpose, it is necessary for us to consider whether these sand moulds are not hit under explanation to Rule 57 (A). This is the crux of the issue to be considered. Even accepting the assertion made by the learned advocate that moulds other than shell sand moulds are not stable and hence they are not finished excisable goods, the question, still, is required to be considered, as to whether these sand moulds are not hit by the excluded category of items as per the aforesaid explanation or otherwise. Only when the scheme is applicable as laid down in Rule 57(A), the question of going into the applicability of other rules such as 57(C) and 57(D) is required to be considered. We, therefore, hold that the threshold for the whole issue is Rule 57(A) and for considering whether the scheme is applicable or not, the authorities are required to be satisfied that the inputs do not get excluded by the explanation to Rule 57(A).
13. Now we propose to consider this issue in a greater detail, in the context of the admitted position. Sand moulds whether belonging to the category of stable moulds or otherwise are made independently in the foundry. There is a specific allegation by the department in the show cause notice that these moulds are in the nature of equipment. Shri Hidayatullah’s contention that the allegation is cryptic without evidence is not tenable because the allegation in the show cause notice itself opens up as below:
“Sand moulds are in the nature of equipments and used for manufacturing castings. Foundry chemicals as mentioned above are inputs of sand moulds and not inputs of castings”.
The show cause notice clearly says that the sand moulds are in the nature of equipments and foundry chemicals are used as inputs of sand moulds and not inputs of castings. This allegation even during the argument of the learned advocate has not been effectively met or rebutted. He contends that there is no evidence to sustain the allegation that sand moulds are equipments. He does not assert that they are not in the nature of equipment, but asserts that they are intermediate products. We have carefully considered this argument. The term ‘equipment’ as per the dictionary meaning, is described as an apparatus needed for any operation. Moulds for metals are apparatus needed for casting. They may be one time use apparatus for casting, all the same they come in the category of equipment only. What more evidence or elucidation is called for, for this allegation is not indicated by the learned advocate. By virtue of explanation to Rule 57(A), modvat credit is not available in respect of such equipment. Since the inputs are admittedly used in the moulds, which are in the nature of equipment, duty paid on such inputs cannot be taken credit against the duty payable on steel casting by virtue of explanation. Thus, at the threshold of the scheme itself, foundry chemicals used in the preparation of sand moulds get blocked by virtue of the provisions of explanation to Rule 57(A). For deciding this question, in our view, it is not necessary for us to go into the question of whether the moulds are in the nature of finished excisable goods or otherwise. Only when it is held that the moulds are not in the nature of equipment but are included as inputs as per explanation, we are to go into the provisions of other rules. The department’s other allegation was that credit is not to be allowed, since mould is a final product, which is exempted. Since we hold that the Rule relating to applicability of modvat credit namely 57(A) itself blocks the eligibility of inputs used in the equipments, it is needless for us to consider this aspect. Even accepting the argument of Shri Hidayatullah that some moulds may be unstable and are not marketable, all the same, they remain only in the nature of equipment or apparatus and hence come under the purview of explanation to Rule 57(A). Possibly because of the indispensable nature of this equipment i.e. ‘moulds’, the Government have granted exemption to all moulds for metal casting. If some of the moulds are not ‘goods’, at the most, they need not claim the exemption, because they are not marketable. On this ground, they do not cease to be an equipment for casting for purposes of interpreting the explanation to Rule, 57(A). As regards the argument that sand moulds are intermediate product, this is dealt with alongwith the consideration of applicability of Rule 57D. The alternative argument proposed by the learned advocate is that the credit should not be denied on the ground that any intermediate product comes into existence during the course of the manufacture of final product and such intermediate product is for the time being exempt from the whole of the duty. In this context, he relied on the provisions of sub-rule (2) of Rule 57(D), which reads as below:
“Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty”.
(Emphasis supplied by us)
14. It is argued that the benefit of Rule 57(D) can be taken if the inputs have gone into any exempted intermediate product, which have come into existence during the course of manufacture of final product. Here, the final product is casting. It is claimed by the learned advocate that moulds are to be construed as intermediate products.
15. We have carefully considered this plea. It is an admitted position that sand moulds are independently manufactured. They do not occur at an intermediate stage in the product stream of the final product, and hence they cannot be construed to be an intermediate product which have come into existence during the course of manufacture of the final product. In our view, sand moulds can only be construed as manufactured independently and used as apparatus for casting. Hence, the alternative argument based on Rule 57(D) also fails to convince us.
16. Since both the main and alternative arguments of the learned counsel are not sustainable as per our above findings, we dismiss the appeals and uphold the view of the department that inputs used in sand moulds, which are only equipment for casting, are not entitled for modvat credit towards the duty payable on the final product namely castings. The demands of the department are therefore enforceable.